Nomad expands in frozen pizza with Goodfella's acquisition

Frozen food giant Nomad Foods is expanding its reach in the freezer counter through the acquisition of Goodfella's pizza.

The company announced yesterday (17 January) that it has agreed to pay €225m for the pizza brand, which is currently operated by 2 Sisters Food Group, a subsidiary of Boparan Holdings.

Nomad, which produces frozen foods under household brands including Birds Eye and Findus, said that the deal will be immediately accretive to adjusted EBITDA and adjusted earnings per share. Within two years of closing, Nomad predicted Goodfella's will contribute approximately €150m revenue, €22m to €25m adjusted EBITDA and €0.08-9 adjusted earnings per share.

Throughout 2015 and 2016, the company’s organic growth rate remained stubbornly negative. However, a focus on its iconic core brands and “must win battles”​ enabled Nomad to claw back the initiative in 2017, when it was able to accelerate organic growth from 1.1% in the first quarter, to 3.5% in Q2 and 5.9% in Q3.

Further proof that the turnaround is gaining steam came yesterday when Nomad increased its full-year forecasts. The company, which will deliver its results in March, raised its organic growth outlook from 3% to 5% and lifted its adjusted EBITDA expectations to €328m versus the prior expectation of approximately €325-327m.

Noam Gottesman, Nomad Foods’ co-chairman and founder, commented: “Over the past two years, Stefan and the team have successfully integrated two of Europe’s largest frozen food businesses while strengthening the core product offering.”​

With “strong organic revenue growth momentum”​ secured, Gottesman said the “time is right”​ to expand into “new strategic categories such as pizza​”, which offer adjacent avenues for growth and synergies.

Goodfella's a good fit

Nomad already accounts for 14% of the western European savoury frozen food market, a category that the company described in an investor event last year as “resilient and growing”​. The company has said that it sees M&A as an avenue to deliver further growth.

At the group’s investor day, management said that it will participate in the consolidation of the European frozen food segment. It also views acquisitions as a means to extend Nomad’s geographical reach and open up new markets. Nomad has previously been linked to rumoured deal-making in the US, for instance.

Source: Nomad Foods, November 2017

Nomad's current portfolio is focused on frozen fish, vegetables, meals and poultry.

Nomad’s brands typically hold the number one or number two positions across the categories and markets in which it operates.

The company's spontaneous brand awareness is high across its markets: 74% in the UK, 86% in Ireland, 62% in Germany, 72% in Sweden and 42% in France.

These are the characteristics that Nomad was looking for in a target company.

“We have a series of criteria, which is we want to obviously buy market-leading brands, business with competitive advantage, strong management cash flow, and obviously synergies,”​ Descheesmaeker explained back in November, following the group’s third-quarter results.

With Goodfella's, that is just what Nomad will get.

A spokesperson for the company explained: “This acquisition gives Birds Eye over 17% of the frozen pizza market in the UK and increase Birds Eye’s overall category share to just under 20%.​

“It will also be transformational for the Irish business, making it the clear frozen brand leader with a number one position in pizza, fish fingers and poultry.”​

Pizza’s potential

The spokesperson was quick to highlight the opportunity presented by the frozen pizza sector, which he described as an “attractive”​ and “complementary”​ category.

“At €4bn retail sales value, it is the second largest European frozen category after seafood and one where our presence was minimal prior to this acquisition.”​

Indeed, according to data from research provider Euromonitor International, frozen pizza sales in Western Europe increased by 2.2% between 2016 and 2017.

However, the picture in the UK and Irish markets is somewhat less rosy. Sales in Ireland were relatively flat last year, at -0.1%, while frozen pizza sales in the UK declined -1.3% in the period. Innovation in the frozen pizza space has largely focused on delivering a 'takeout pizza experience' but competition has been strong from private label chilled pizza offerings, with a focus on premium ingredients.

Does this suggest Nomad could ultimately make a play for a slice of the pizza-pie in the other European markets where it already has a strong presence, including France, Germany, Sweden, or Italy?

The company would not be drawn on its future plans. However, Nomad did note that the acquisition includes two pizza production facilities, in Naas and Longford in Ireland. This will "provide a foundation for future expansion in the category”,​ Nomad suggested.